MAS unlikely to ease monetary policy on Jul 26, even as June surprises with softer inflation

SINGAPORE’S central bank is likely to keep monetary policy settings unchanged at its next meeting on Jul 26, said economists, even as latest inflation figures on Tuesday (Jul 23) came in lower than expected.

In June, headline inflation surprised by falling to a three-year low of 2.4 per cent. But core inflation – which excludes private transport and accommodation, and which the central bank focuses on instead – was just slightly lower than expected, at 2.9 per cent.

The official full-year forecast range for headline inflation will be reviewed and updated in Friday’s monetary policy statement, said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) on Tuesday.

Bank of America Asia and Asean economist Ang Kai Wei expects them to lower it to a range of 2 to 3 per cent, down from the current estimate of 2.5 to 3.5 per cent.

But he added that changes to headline inflation forecasts “should not be interpreted as signposts for potential policy changes”. Instead, the key metric to watch out for is core inflation, as that is the measure which MAS “monitors most closely”.

“All in, we don’t think that the June print necessarily points to any sharp slowdown in inflation momentum that would result in core inflation (in year-on-year terms) stepping down considerably over the next couple of months,” said Ang.

In a Reuters poll, nine of 10 analysts expect the MAS to maintain current policy settings on Friday.

Ang expects MAS to “signal great comfort with current settings”, while OCBC chief economist Selena Ling similarly expects the central bank to stand pat, with a “largely static” assessment of inflation risks for the coming months.

Not that surprising

In June, headline inflation was 2.4 per cent, down sharply from 3.1 per cent in May, Department of Statistics data indicated.

This was lower than the median forecast of 2.7 per cent by private-sector economists polled by Bloomberg, and marked the lowest rate since August 2021, when it was also 2.4 per cent.

Core inflation, which excludes accommodation and private transport, was 2.9 per cent. This was lower than May’s 3.1 per cent, and just below economists’ median estimate of 3 per cent.

In June, most broad consumer price index (CPI) categories experienced lower inflation, while others stayed flat.

Tuesday’s prints prompted some economists to lower their full-year headline and core inflation forecasts.

OCBC’s Ling lowered her full-year forecasts to 2.6 per cent for headline inflation, down from 2.8 per cent, and to 2.9 per cent for core inflation, trimmed from 3 per cent.

UOB economist Jester Koh lowered his headline inflation forecast to 2.5 per cent, from 2.8 per cent previously.

“We project core inflation to average 3 per cent in 2024 and ease significantly to 1.6 per cent in 2025, anchored by base effects, assuming no further exogenous shocks,” Koh said.

But he noted that a pick-up in imported and external inflation in recent months “warrants close monitoring”, as any re-acceleration – particularly for food, which has a weight of 21.1 per cent in the CPI basket – could slow the progress of disinflation.

“Thus, it may be more prudent for the MAS to maintain the prevailing restrictive slope settings for a tad longer,” he said.

UOB previously expected the MAS to begin loosening policy in July, but has since deferred that till October, though “the possibility of a July move cannot be entirely ruled out”.

Other economists continue to expect MAS to maintain policy in July.

Standard Chartered economists Edward Lee and Jonathan Koh noted that June’s core inflation figure was “broadly in line with expectations”, adding: “We stick to our call for a status quo call for MAS this Friday but (it will) probably ease further on its language to keep a restrictive policy.”

After tightening policy five times between October 2021 and October 2022, MAS has not changed its policy settings since.

In the latest MAS survey of professional forecasters in June, most respondents expect no changes to monetary policy settings in both the July and October meetings.